FOREX-Dollar snaps three-day losing streak on U.S. tax plan bets

LONDON, Dec 4 (Reuters) - The dollar rose half a percent on Monday against a trade-weighted basket of currencies after the U.S. Senate approved a tax overhaul at the weekend, though gains were limited by doubts that interest rates would rise as a result.

The Senate’s approval on Saturday moves Republicans and President Donald Trump a big step closer to their goal, which would be the largest change to U.S. tax laws since the 1980s .

“There is some broad optimism generated on the U.S. tax plan’s passage through the Senate, but it remains to be seen how much it will translate into higher U.S. interest rates next year,” said Christin Tuxen, an FX strategist at Danske Bank.

The U.S. dollar’s trade-weighted index rose 0.5 percent to 93.35 in early London trading before easing to a 0.4 percent gain on the day. Monday’s rise snapped three consecutive days of losses.

The dollar’s bounce was also fuelled by some short-covering after speculators added their biggest short bets against the dollar in more than a month to $6.213 billion, according to latest positioning data.

Talks will begin, probably this week, between the Senate and the House, which already has approved its own version of the legislation, to reconcile their two bills. Commerzbank strategists said that was a big obstacle to passing the bill into law.

“From a technical perspective the dollar is positioned to extend its gains. But fundamentally it will need progress between the Senate and the House on the tax agenda and also an upbeat reading from Friday’s employment data,” said Junichi Ishikawa, senior forex strategist at IG Securities in Tokyo.

For now, the dollar has had a boost from higher U.S. bond yields. Benchmark U.S. Treasury yields were up 2 to 4 basis points across the board.

The dollar was up 0.6 percent at 112.935 yen after rising to 112.985, its highest since Nov. 17.

The euro slipped 0.4 percent to $1.1858 with any optimism generated by the U.S. tax bill offset by growing bets on the European economy. German industrial orders data for October due on Wednesday will be a key data point watched by markets.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Reporting by Saikat Chatterjee, additional reporting by Shinichi Saoshiro in Tokyo, editing by Larry King)